Air Of Uncertainty

Lodging Conference Kicks Off With Concerns About Aging Business Cycle, Economy

The 25th annual Lodging Conference marked the end of era for the event as it moved to a new venue after some two decades at the Arizona Biltmore, but more importantly attendees are hoping this year’s event doesn’t mark the end of a prolonged era of growth.

Taking place at the JW Marriott Desert Ridge in Phoenix, the first day provided an air of uncertainty about whether the long awaited lodging industry downturn is finally upon as well as an economic downturn.

However, speaking about the overall U.S. economy, Bernard Baumohl, chief global economist, The Economic Outlook Group, LLC, provided some reassuring news in his keynote as he strongly insisted he does not see a recession on the horizon.

“There is this undercurrent of fear and anxiety and alarm that a recession is not only possible but probable next year. It is extremely difficult for a 22 trillion dollar, free market economy to actually fall into a recession,” he said, further adding of such events, “they’re actually quite rare.”

Baumohl did acknowledge some cause for concern. “We have all of these economic and geopolitical events swirling around right now so the question that I get asked most often is how many more blows can this aging business cycle take?” he said.

Baumohl further added, “We’re right now in eye of a political storm as a result of the 2020 presidential election,” he said.

But Baumohl explained his reasons for optimism. “There is no doubt that we’ve really achieved something quite spectacular by growing for more than 10 years. If you look basically at the fundamentals of the economy they still look great,” he said.

Baumohl went on to cite positive factors like historically low unemployment; increasing wages; the low cost of borrowing; availability of capital; and tech innovations as good signs. “These are not the kinds of symptoms that you see of an economy that’s approaching a peak and about to slip into a recession,” he stated.

Nevertheless, the economist pointed out a few things that bear watching.
“There are some very legitimate concerns. There is, of course, the festering trade war that’s going on. The trade war is a huge foot on the neck of the economy right now. It has been starving the manufacturing sector and also been affecting other sectors as well, such as construction and even hospitality. All of this has helped squeeze margins. Without a doubt the trade war has really depressed economic activity,” he said, adding, “tourism from China has dropped significantly.”

Arne Sorenson, president and CEO, Marriott International, later stressed the importance of China as well. He noted that the Chinese visitors only represented roughly 5 percent of international arrivals to the U.S. in 2018. He added that outbound trips from China have increased roughly 20 percent a year.

“It is crystal clear that Chinese travelers are still traveling abroad. They’re much less likely to come to U.S. today than they were just a few years ago,” said Sorenson.

“We won’t get back to getting our fair share of this business until we communicate somehow from the shores of the U.S. ‘we want you to come; your welcome here and we’re going to make it relatively easy for you to come,’” he said.

Sorenson also went on to express concern over a potential economic downturn. “In the corporate world we’ve got to be cautious about what lays around the corner… We collectively need to be ready. We don’t know necessarily that we’re going to have a recessionary environment, but we could have a bit softer patch than what we’ve seen for the last couple of years,” he said.

Baumohl, meanwhile, offered further evidence why he thinks the economy is resilient. “The consumer is the bedrock of the economy at this moment. We’re expecting consumers to continue to spend, maybe at a slightly slower pace for the next year or two, but fundamentally they’re got all the characteristics to continue shopping,” he noted.

Baumohl added he expects GDP growth in the 2 percent range for the U.S. next year while reinforcing his earlier point. “I do not see a recession in the next two years.”